Gold jewellery demand may fall by 2-4% due to high prices, subdued financing environment: Icra

Demand for gold jewellery is likely to decline by 2-4 per cent this calender year due to high prices and subdued financing environment, said a report. However, in value terms, the demand for gold jewellery is likely to register a growth of 5-7 per cent during the year, rating agency Icra said in its report. "Demand is likely to be affected by 2-4 per cent in 2018. Prices of the yellow metal have increased steadily in the last three months, which coupled with lesser number of auspicious days, impacted jewellery demand. Also, financing to the gems and jewellery sector have been under increased scrutiny in the recent months following reporting of fraud by few lenders on their exposures to the sector," said K Srikumar, vice-president, Icra.

He said, with enhanced due diligence and checks on credit quality and inventory quality, lenders are more cautious on the sector. "We expect the tightened credit availability to affect the working capital position of jewellery retailers, especially the unorganised ones," Srikumar added. However, in the medium to long term (3-5 years), Icra expects the gold jewellery retail industry to record a 6-7 per cent volume growth, supported by stable rural and wedding demand, cultural affinity for gold, rising disposable income, and favourable demographic profile.

The industry revenues are also likely to witness 7-8 per cent growth led by socio-economic and cultural factors that are unique to the Indian market, the report said. In calender year 2017, gold jewellery demand had grown by 12 per cent in volumes and 9 per cent in value, according to the report, amid reports of higher tax rates post GST and inclusion of jewellery sector under the ambit of Prevention of Money Laundering Act.

The growth was supported by factors like pent-up demand on the back of favourable gold prices, pre-buying ahead of GST rollout, extended wedding season and strong rural demand with good crop output. Meanwhile, in financial year 2017-18, Icra estimates the revenues of the domestic gold jewellery industry to have grown by 12 per cent, largely supported by recovery in demand post demonetisation, stable demand from both rural and urban segments, lower gold prices and regulatory measures supporting organised trade.

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The rating agency expects the industry revenues to grow by 8-9 per cent in FY19 supported by stable wedding or festive demand.